Australian Dollar: USD/AUD (AUD=X) RBA and FOMC appear to be at the crossroads
Two opposing central banks began to collide this week as both the RBA and FOMC appear to be at the crossroads.
The RBA made the first big step in many years and cut the cash rate by 25bp to 1.25%. Shortly thereafter, Governor Lowe came out and suggested there might be more cuts on the way. His goals appear to have changed slightly in recent times. His primary role as RBA boss is to keep inflation in check. At the moment, inflation continues to lag the 2-3% target band and has done so for some time.
Governor Lowe has since turned his attention to using monetary policy to lift both and jobs and wages. The heartbeat of the economy. Lowe would like to see unemployment fall from where it currently sits at 5.2%, down to the low-4s. At the same time, he would also like sluggish wage growth to pick up. Both measures would then stimulate the economy and lift inflation.
It is also important to note that exports make up a huge portion of Australia’s GDP. Particularly commodities such as iron ore and coal. The vast majority of commodities are priced in USD and that means a weak AUD/USD is a positive for exporters. They will receive more money for the same level of exports when the exchange rate falls.
The AUD’s response to this weeks rate cut might even be a bigger concern for Governor Lowe. The Aussie rallied when by most opinions it should have fallen.
The markets already pricing in a rate cut could be one reason for this. The other cause was the weak USD. The US Dollar Index has tumbled from 98.00 to where it sits currently around 96.50. US Fed boss Jerome Powell prompted the move, suggesting further rate cuts could happen this year if required.
The Jobs Fallout
On Friday, another significant piece of the puzzle fell into place. The US non-farm payroll number came in at a disappointing 75K for the May. The number was expected to be 185k, which is a significant miss. The jobs situation in the US has been very strong of recent times and has been a real shining light. That suggests this number was a bit of a red flag to many.
The failure to put up a strong number opens the door for Powel and Co. to cut official rates, at least in the short-term. If that comes to be, then we have to expect some downside in the Greenback. That will continue to prop up the AUD/USD, which is sitting perilously close to the 0.7000 level. As yet it has been unable to breach that resistance level in any meaningful way, despite its best attempts on Friday.
At this point in time, it is unclear as to which central bank will win the battle of the rate cuts. If anything I feel there is more room for the RBA to cut and the FOMC seems to be looking to do so only begrudgingly.
Overall, the bias in prices is: Sideways.
The projected upper bound is: 0.71.
The projected lower bound is: 0.69.
The projected closing price is: 0.70.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 22 white candles and 27 black candles for a net of 5 black candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 71.1182. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 56.45. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 14 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 125.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 11 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 10 period(s) ago.
Rex Takasugi – TD Profile
FOREX AUD= closed up 0.002 at 0.700. Volume was 20% below average (neutral) and Bollinger Bands were 22% narrower than normal.
Open High Low Close Volume___
0.698 0.702 0.696 0.700 77,262
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 0.70 0.70 0.71
Volatility: 5 7 10
Volume: 91,556 91,619 104,989
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX AUD= is currently 1.7% below its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of AUD= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AUD= and have had this outlook for the last 1 periods.